Workhorse Group Inc. (WKHS) shares kept falling Tuesday afternoon, extending the selloff that began after the company's reverse stock split officially took effect Monday. And if you're wondering why a purely mechanical corporate action would trigger such a negative reaction, well, you've stumbled onto one of the market's more reliable warning signals.
The Mechanics Behind the Move
Workhorse implemented a 1-for-12 reverse stock split that consolidated outstanding shares from approximately 26 million down to roughly 2.17 million. The official reason? Satisfying Nasdaq's minimum bid price requirements as the company works to complete its merger with Motiv Power Systems.
On paper, this changes nothing about the company's fundamental value. Each shareholder owns the same percentage of the business they owned before, just with fewer shares at a proportionally higher price. Think of it like exchanging a ten-dollar bill for a single ten-dollar bill instead of ten singles—same value, different denomination.
Why Investors Aren't Buying It
Here's the problem: healthy companies don't typically need reverse splits. Strong businesses boost their share prices through actual growth and positive performance. A reverse split is essentially an artificial remedy deployed to avoid getting kicked off an exchange. Markets know this, which explains the selling pressure.
Investors often interpret these moves as precursors to future dilution. The concern is that management will use the temporarily higher share price as an opportunity to issue new equity for emergency capital, diluting existing shareholders in the process. For Workhorse, the split underscores just how urgent maintaining compliance has become as it tries to finalize the Motiv transaction and secure necessary liquidity.
The timing doesn't help either. Last month's third-quarter earnings delivered mixed results—Workhorse narrowed its loss per share to 50 cents, beating estimates, but revenue of $2.39 million missed the $3 million analyst consensus.
Technical Picture Looks Grim
Workhorse shares were down 12.52% at $6.64 at the time of publication Tuesday, trading perilously close to the 52-week low of $6.36. The technical indicators paint an unambiguously bearish picture: the stock is currently trading 41.8% below its 50-day moving average of $11.34 and a staggering 64.3% below its 200-day moving average of $18.51.
That substantial gap from both moving averages doesn't just indicate lost momentum—it suggests significant resistance ahead for any potential recovery. Market data shows Workhorse carrying a momentum score of just 3.34, accompanied by negative price trends across short, medium, and long-term timeframes.
The bottom line? Reverse splits might be neutral on paper, but the market rarely treats them that way. And right now, investors are voting with their feet.